LTV Calculator — Loan to Value

The LTV ratio is fundamentally a measure of leverage. To calculate it, divide the total loan amount by the appraised value or purchase price of the property, then multiply by 100 to express it as a percentage. The purchase price itself is simply the sum of your down payment and the loan amount. Alternatively, you can determine LTV by subtracting the ratio of your down payment to the purchase price from one. Lower LTV ratios indicate higher equity and less risk for lenders, often unlocking better interest rates and removing the requirement for mortgage insurance.

Imagine you are purchasing a home with a total purchase price of $400,000. You have saved up an 80,000 down payment, and you take out a mortgage loan for the remaining balance. First, we find the loan amount by subtracting the down payment from the purchase price: $400,000 - $80,000 = $320,000. Next, we apply the LTV formula by dividing the loan amount by the purchase price: $320,000 / $400,000 = 0.80. Multiplying this decimal by 100 reveals an LTV ratio of 80 percent, which is a common threshold for avoiding private mortgage insurance.

Aim for an LTV of 80 percent or lower to avoid paying monthly private mortgage insurance, which can significantly lower your long-term borrowing costs. Always use the appraised property value rather than the listing price if they differ, as lenders base their final lending decisions strictly on the official appraisal. Keep in mind that building equity through extra principal payments or home improvements can help lower your LTV over time, potentially allowing you to refinance into a more favorable loan product.